The Shift From West To East And Its Impact On Commercial Law Firms-00-7350

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However, there is one burning question on the minds of Western business leaders, regulators and politicians. Will the impact of the Great Recession shift the economic balance of power from West to East?

In order to address this question, we need to analyse the impact of the global recession on the public finances, newly proposed taxes and regulatory regimes of the UK and USA. Furthermore, an assessment of the emerging market economies is needed, with a specific focus on India and China (members of the BRIC group).

Firstly, the public finances of the UK and USA have plummeted in the last year. According to the Office for National Statistics, the UK's government deficit reached a staggering 7.1% of GDP for 2008/9. The International Monetary Fund has forecasted that US government deficit would hit 10% of GDP for 2009/2010.[1] This will inevitably bring cuts to government spending on education and training, thereby reducing the effectiveness of the workforces for both countries in the long-term.

Secondly, the forthcoming 50% tax rate on high earners (April 2010) will force expats living in Britain to look for ...
... more favourable tax environments.[2] This is on top of the tax already being levied on bonuses, which may be driving talented employees overseas.

Thirdly, there is much debate about radical changes to US financial regulation, but there is very little agreement. Currently, one option that is being discussed is whether commercial banks should have their investment-banking arms forcibly removed.[3]

Finally, there has been a positive growth trend among certain emerging market economies, known as the BRICs. What are the BRICs? The term was created by Jim O'Neil, an economist at Goldman Sachs, who identified Brazil, Russia, India and China as potential challengers to the developed world. India and China have shown considerable promise in recent years, with both countries achieving economic growth rates of 6.6% and 8.5%, respectively. ‘China's size and openness to trade give it as much economic clout as the rest (of the BRIC countries) put together, with India being chiefly notable to investors and trading partners for its software and business services.'[4] Also, emerging market corporations in India and China seem to be hungrier for growth in their businesses. For example, ‘the Indian technology major, Tata Consultancy Services, picked up Citigroup Global Services for US$ 505 million in October 2008; another Indian technology company, HCL, bought Britain's Axon Group for $672 million; and China Minmetals made a US$ 1.7 billion bid for the Australian company OZ Minerals in February 2009.[5]

So how best can commercial law firms respond to this shift in the economic balance of power from West to East? Well it is obvious that those law firms with global capabilities and networks will be best placed to take advantage of this new opportunity. They will be diversified geographically, as well as, across sectors and practice areas.

Thus, it is clear that ambitious commercial law firms should look to adopt this approach in the future, in order to mitigate risk, during these challenging times.

[1] Ralph Atkins- ‘ECB president reassures on public finances', Financial Times [Feb 2010]

[2] ‘Foul-weather friends', The Economist [Dec 2009]

[3] ‘Stage prop', The Economist [Jan 2010]

[4] Alan Beattie- ‘Brics: The changing faces of global power', Financial Times [Jan 2010]

[5] Nirmalya Kumar- ‘How Emerging Giants Are Rewriting the Rules of M&A', Harvard Business Review

About the Author:

This article was written by Hyder Mushtaq (a GDL student) for 'Legal Incite', a BPP Law School student publication.

BPP Law School provides students with the opportunity to http://www.bpplawschool.com/programmes/summerschool/ in one of our first class learning environments in Birmingham, Bristol, Leeds, Manchester or London to gain an LLB http://www.bpplawschool.com/.